MUMBAI: The markets took everyone by surprise by their rollercoaster ride this week. First it rallied after the US central bank postponed the tapering of QE program for the time being, and then came a bolt from the RBI. The market slid as Raghuram Rajan hiked the repo rate at a time when the economy is seen decelerating.

Fears over commodity prices going higher due to the delay in commencement of QE3 tapering will not hold. Fact of the matter is global commodity prices have been a function of demand and supply in QE3 regime. In fact, brent crude, gold, silver, platinum, copper, aluminum and zinc corrected sharply a day after FOMC policy announcement.

International prices of base metals are lower by over 10 per cent in the last couple of years and inflation in the US is below 2 per cent despite QE1, QE2, QE3 playing out. It stems the fact that pricing power in the US economy has not returned due to sluggishness in demand growth.

As a consequence, the fiscal deficit of the US government is on the rise. My own sense is that unless pricing power based on growth in demand shows improvement, monetary stimulus through their central bank would continue.

Back home, the RBI hiked policy repo rate by 25 basis points though MSF rate was reduced by 75 basis points and some liquidity comfort was provided to banks by the lowering of the daily maintenance of cash reserve ratio from 99 percent to 95 percent.

Anticipated inflationary pressure on economy was cited as the key reason for hiking benchmark borrowing rate.

These steps will induce more pain in an economy which is decelerating. Realty, construction and automobile and related space will be adversely impacted. I expect NPAs in banks, especially PSBs, to rise further.

However, in the long run, the recent measures announced by RBI may turn out to be beneficial since an attempt is being made to make real rate of return on savings attractive.

Given the current scenario, volatility will rise. Trading bias is likely to be selling on rallies.

For Nifty, it will be difficult to breach 6,150 on the upside, while a break below 5,940 will trigger selling, pushing it in the zone of 5,840-5,800.